Ballard Systems is a pass, says Roth Capital

The prognosis doesn’t look good for Ballard Power Systems (Ballard Power Systems Stock Quote, Charts, News, Analysts, Financials NASDAQ:BLDP), according to Roth Capital Partners analyst Craig Irwin, who provided an update to clients on Thursday in which he said Ballard has lost its outsized leadership in the fuel cell tech space.

Vancouver-based Ballard, which designs and manufactures proton exchange membrane (PEM) fuel cells for applications such as heavy vehicles and stationary power, reported its first quarter earnings on Wednesday. Total revenue was down 37 per cent year-over-year to $13.3 million, with its Heavy Duty Mobility segment seeing an 11 per cent drop to $8.7 million, Stationary revenue down 58 per cent to $2.5 million and Emerging and Other Markets revenue of $2.1 million down 61 per cent.

The company touted its now $137.7 million order backlog as proof that its business is solid and should see a busy second half to 2023, calling for 70 per cent of its projected annual total to come in the latter two quarters.

“Our first quarter revenue of $13.3 million and new order intake of $17.6 million are consistent with our full-year 2023 plan,” said Randy MacEwen, President and CEO, in a press release. “With an increasingly positive policy landscape, we see growing customer interest in our core mobility markets of bus, truck, rail, and marine in Europe and North America.”

On the quarter, Irwin deemed it a “large miss,” saying revenue at $13.3 million was lower than his expected $25.0 million and the consensus call at $18.6 million, while an adjusted EBITDA loss of $38.3 million was larger than his expected negative $35.9 million but more in-line with the Street’s expectation at negative $38.0 million.

Irwin said Ballard’s Heavy Duty business outside of China shows gaining momentum, whereas its Stationary Power is lagging, although backlog in the latter appears to be building up well. 

Ballard signed a major strategic collaboration with Weichai Power back in 2018, with the latter now serving as the largest BLDP shareholder. But progress on that front appears unclear at the moment, according to Irwin.

“Ballard reported weak 1Q23 results with a negative $48 million operating cash burn. Over $864 million in cash exiting 1Q23 leaves room for management to reposition the company, as roughly negative $140 million cash burn through YE23 leaves capacity for long-term investment,” Irwin wrote.

“Weichai will now weigh on Ballard’s results through 2024, so we see the China strategy as unproven. We ponder mgmt’s decision to cut prices to stimulate demand, and this seems to confirm Ballard has lost what used to be an outsized leadership position in fuel cell technology,” he said.

With the update, Irwin reiterated a “Neutral” rating on BLDP while lowering his 12-month target from $5.00 to $4.00, which at press time represented a projected return of negative six per cent.